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| 1. |
What is GDP and how is it counted? |
| Answer» \tGross Domestic Product (GDP) is the market value of the final goods and services produced during a year within the domestic territory of a country.\tHere only final goods and services are counted to avoid the problem of double counting.\tFor e.g. a farmer sold wheat to flour mill for Rs. 10 per kg. The mill grinds the wheat and sold the flour to a biscuit company for Rs. 12 per kg. The biscuit company uses the flour, sugar and butter to make 5 biscuit packets. He sold the biscuit to the consumer at Rs. 15 per biscuit packet.Here biscuits are the final goods that are purchased by the consumer. Wheat and wheat flour are the intermediate goods used in the production of final good.The value of Rs. 75 already includes the value of flour Rs. 12.\xa0Hence only the value of final goods and services.\xa0\t\tTherefore, GDP = Value of output − Intermediate Consumption | |